Tax-Free Childcare Scheme: Will It Help Parents?

It sounds like a jolly good thing – a new tax-free childcare subsidy worth up to £2,000 a year per child! Lovely. An extra £2,000 a year in our pockets. Enough for a top-notch holiday, or a new car.

Except, of course, it's not that simple. No government is THAT generous.

Because this is just replacing the existing childcare voucher scheme. And actually, some families will be worse off under the new scheme than they were under the old one.

Here are the basics: The new subsidy will be introduced in the autumn of 2015. All parents with children under the age of 12 will be eligible, if they are in paid work and earn less than £150,000 a year.

For every £8 paid by parents towards the cost of childcare, the state will provide a £2 top-up.

However, parents will have to examine their finances very carefully to see whether they will benefit.

Mark Groom, tax partner at Deloitte, pointed out: "Currently, where both parents are basic-rate taxpayers, they can both benefit from tax relief on up to £55 per week in childcare vouchers, a total of £5,720 between them per annum.

"Their combined tax relief at 20 would amount to £1,830.40."

So basic-rate tax payers might benefit more from their current childcare voucher scheme – but for higher-rate tax payers, it could be the opposite.

However, not all companies offer voucher schemes, so the new deal will potentially be available to more parents.

As always, it's horribly complicated. But there should be winners. The self-employed, for example, who should be able to benefit from this tax relief. About time too.

The tax laws are so complex that in order to understand fully what you can claim for as a self-employed worker, you need to hire an accountant, which could immediately wipe out any financial benefits you might gain from what they have to say.

Then there's the horror of calling the Tax Credits Helpline, with small children wailing in the background while you sit on hold for hours on end before speaking to three different people who tell you different things and then being cut off before the issue is resolved. Let's just hope this new system is less tortuous.

Details of exactly how this new tax-free childcare will work are currently out for consultation by the Treasury – there's been a legal challenge from childcare voucher companies which is holding things up. Which doesn't bode particularly well.

The Family and Childcare Trust are also not particularly keen – they say there is a danger that the new policy could actually lead to a rise in childcare costs, which will wipe out any benefit to parents.

According to the FCT, as soon as the Government introduces new childcare support, nurseries rub their hands in glee and whack up their fees.

Figures show that in the 18 months following the introduction of new tax credits in 2003, nursery costs for under-twos went up by 10 per cent and childminder costs went up by 11 per cent.

What is beyond any doubt is that the cost of childcare has soared way in advance of our salaries. The FCT quotes figures which show that since 2005, salaries have risen by 21 per cent while nursery care for a two-year-old has risen by 64 per cent.

The Trust says the Government has a 'sticking plaster approach' to childcare provision, which seems to sum it up quite nicely. They say the Tax Free Childcare Bill won't fix a broken system and won't help parents.

So what is the answer? The FCT says that the Government needs to develop a long-term vision and strategy that reflects the needs of today's parents and children.

Anand Shukla, Chief Executive of the Family and Childcare Trust, says: "Our childcare market is not fit for purpose. It is failing to fill gaps in provision, particularly for those parents who most need childcare; it is failing to drive up quality; and it is becoming more unaffordable to parents despite increased government funding.

"It is now 10 years since any government developed a comprehensive strategy for childcare and it is clear a complete overhaul of the system is needed. The Family and Childcare Trust wants to see all political parties commit to developing a new childcare vision that delivers for parents, childcare providers, and crucially, for children."

Sounds like a grand idea. Except this is all going to take time. And commitment. And a lot of government money. Call me cynical, but I can't see major changes happening any time soon. And in the meantime, another generation of parents and children struggle to get by, the best way they can.